NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED JUNE 30, 2016 AND 2015
(UNAUDITED)
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1.
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Summary of Significant Accounting Policies
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Nature of Operations and Basis of Presentation
- Amtech Systems, Inc. (the “Company”, “Amtech”, “we”, “us” or “our”) is a global manufacturer of capital equipment, atomic layer deposition (“ALD”) including thermal processing, silicon wafer handling automation, and related consumables used in fabricating solar cells, LED and semiconductor devices. The Company sells these products to solar cell and semiconductor manufacturers worldwide, particularly in Asia, the United States and Europe.
The Company serves niche markets in industries that are experiencing rapid technological advances and which historically have been very cyclical. Therefore, future profitability and growth depend on the Company’s ability to develop or acquire and market profitable new products and on its ability to adapt to cyclical trends.
The accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”), and consequently do not include all disclosures normally required by accounting principles generally accepted in the United States of America. In the opinion of management, the accompanying unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly our financial position, results of operations and cash flows. Certain information and note disclosures normally included in financial statements have been condensed or omitted pursuant to the rules and regulations of the SEC. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the fiscal year ended September 30, 2015.
The consolidated results of operations for the three and nine months ended June 30, 2016, are not necessarily indicative of the results to be expected for the full fiscal year.
Principles of Consolidation –
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries and subsidiaries in which it has a controlling interest. The Company reports noncontrolling interests in consolidated entities as a component of equity separate from the Company’s equity. The equity method of accounting is used for investments over which the Company has a significant influence but not a controlling financial interest. All material intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
- The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
- The Company reviews product and service sales contracts with multiple deliverables to determine if separate units of accounting are present. Where separate units of accounting exist, revenue allocated to delivered items is the lower of the relative selling price of the delivered items in the sales arrangement or the portion of the selling price that is not contingent upon performance of the service.
The Company recognizes revenue when persuasive evidence of an arrangement exists between us and our customers. For example, when the product has been delivered and title has transferred, or services have been rendered, or the seller’s price to the buyer is fixed or determinable and collectability is reasonably assured. For us, this policy generally results in revenue recognition at the following points:
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|
1.
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For the Company's equipment business, transactions where legal title passes to the customer upon shipment, revenue is recognized upon shipment for those products where the customer’s defined specifications have been met with at least
two
similarly configured systems and processes for a comparably situated customer. Selling prices may include both equipment and services, i.e., installation and start-up services performed by our service technicians. The equipment and services are multiple deliverables. Certain equipment that has a positive track record of successful installation and customer acceptance are considered to be routine systems. Revenue recognition upon delivery of such equipment that has been routinely installed and accepted is equal to the total selling price minus the relative selling price of the undelivered services.
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Where there have been installation and acceptance of more than
two
similarly configured items of equipment, but installation and acceptance have not become routine, recognition of revenue upon delivery of equipment is limited to the lesser of (i) the total selling price minus the relative selling price of the undelivered services or (ii) the non-contingent amount.
Since the Company only defers those costs directly related to installation, or another unit of accounting not yet delivered, and the contingent portion of the contract price is often considerably greater than the relative selling price of those items, the policy at times will result in deferral of profit that is disproportionate in relation to the deferred revenue. When this is the case, the gross margin recognized in one period will be lower and the gross margin reported in a subsequent period will improve.
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2.
|
For products where the customer’s defined specifications have not been met with at least two similarly configured systems and processes, the revenue and directly related costs are deferred at the time of shipment and later recognized at the time of customer acceptance or when this criterion has been met. On occasion, the Company has experienced longer than expected delays in receiving cash from certain customers pending final installation or system acceptance. If some customers refuse to pay the final payment, or otherwise delay final acceptance or installation, the deferred revenue would not be recognized, adversely affecting future cash flows and operating results.
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3.
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Sales of certain equipment, spare parts and consumables are recognized upon shipment, as there are no post shipment obligations other than standard warranties.
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4.
|
Service revenue is recognized upon performance of the services requested by the customer. Revenue related to service contracts is recognized ratably over the period of the contract or in accordance with the terms of the contract, which generally coincides with the performance of the services requested by the customer.
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Deferred Profit
– Revenue deferred pursuant to the Company’s revenue recognition policy, net of the related deferred costs, if any, is recorded as deferred profit in current liabilities. The components of deferred profit are as follows:
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|
|
|
|
|
|
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|
June 30,
2016
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|
September 30,
2015
|
|
(dollars in thousands)
|
Deferred revenues
|
$
|
6,290
|
|
|
$
|
7,280
|
|
Deferred costs
|
2,307
|
|
|
2,407
|
|
Deferred profit
|
$
|
3,983
|
|
|
$
|
4,873
|
|
Cash Equivalents –
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash and cash equivalents consist of amounts invested in U.S. money market funds and various U.S. and foreign bank operating and time deposit accounts.
Restricted Cash
– Restricted cash of
$0.6 million
as of
June 30, 2016
, and September 30, 2015, includes collateral for bank guarantees required by certain customers from whom deposits have been received in advance of shipment. Restricted cash as of
June 30, 2016
and
September 30, 2015
includes
$0.2
million relating the Company's proportional responsibility, assumed in connection with the BTU International Inc. (“BTU”) acquisition, for clean-up costs at a Superfund site. Refer to Note 8 to Condensed Consolidated Financial Statements, Commitments and Contingencies, for more detail regarding our proportional liability related to the Superfund site.
Accounts Receivable and Allowance for Doubtful Accounts –
Accounts receivable are recorded at the gross sales price of products sold to customers on trade credit terms. Accounts receivable are considered past due when payment has not been received from the customer within the normal credit terms extended to that customer. A valuation allowance is established for accounts when collection is no longer probable. Accounts are written off against the allowance when the probability of collection is remote.
Accounts Receivable - Unbilled and Other
– Unbilled and other accounts receivable consist mainly of a contingent portion of the sales price that is not collectible until successful installation of the product. These amounts are generally billed upon final customer acceptance. Accounts receivable also includes Value-added tax (“VAT”) receivable.
Concentrations of Credit Risk –
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist principally of cash and trade accounts receivable. The Company’s customers consist of solar cell and semiconductor manufacturers worldwide, as well as the lapping and polishing marketplace. Credit risk is managed by performing ongoing credit evaluations of our customers’ financial condition, by requiring significant deposits where appropriate, and by actively monitoring collections. Letters of credit are required of certain customers depending on the size of the order, type of customer or its creditworthiness, and country of domicile. Reserves for potentially uncollectible receivables are maintained based on an assessment of collectability.
The Company maintains its cash, cash equivalents and restricted cash in multiple financial institutions. Approximately
75%
of the Company's total cash balances are primarily invested in US Treasuries or are in financial institutions insured by the Federal Deposit Insurance Corporation (FDIC). The remainder of the Company’s cash is maintained with financial institutions with reputable credit ratings in The Netherlands, France and China.
As of
June 30, 2016
and
September 30, 2015
,
no
customer individually represented greater than
10%
of accounts receivable.
Refer to Note 6 to Condensed Consolidated Financial Statements, Major Customers and Foreign Sales, for information regarding revenue and assets in other countries subject to fluctuation in foreign currency exchange rates.
Inventories
– Inventories are stated at the lower of cost or net realizable value. Approximately
60%
of inventory is valued on an average cost basis with the remainder determined on a first-in, first-out (FIFO) basis. The components of inventories are as follows:
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|
|
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|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
|
(dollars in thousands)
|
Purchased parts and raw materials
|
$
|
12,265
|
|
|
$
|
11,587
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|
Work-in-process
|
11,832
|
|
|
5,089
|
|
Finished goods
|
4,292
|
|
|
6,653
|
|
|
$
|
28,389
|
|
|
$
|
23,329
|
|
Property, Plant and Equipment
– Property, plant and equipment are recorded at cost. Maintenance and repairs are charged to expense as incurred. The cost of property retired or sold and the related accumulated depreciation are removed from the applicable accounts when disposition occurs and any gain or loss is recognized. Depreciation is computed using the straight-line method. Useful lives for equipment, machinery and leasehold improvements range from three to seven years; for furniture and fixtures from five to ten years; and for buildings from
20-30
years.
The following is a summary of property, plant and equipment:
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|
|
|
|
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|
June 30,
2016
|
|
September 30,
2015
|
|
(dollars in thousands)
|
Land, building and leasehold improvements
|
$
|
18,109
|
|
|
$
|
18,095
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Equipment and machinery
|
9,166
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|
|
9,709
|
|
Furniture and fixtures
|
5,397
|
|
|
5,465
|
|
|
32,672
|
|
|
33,269
|
|
Accumulated depreciation and amortization
|
(16,674
|
)
|
|
(15,508
|
)
|
|
$
|
15,998
|
|
|
$
|
17,761
|
|
Goodwill
– Goodwill and intangible assets with indefinite lives are not subject to amortization, but are tested for impairment when it is determined that it is more likely than not that the fair value of a reporting unit or the indefinite-lived intangible asset is less than its carrying amount, typically at the end of the fiscal year, or more frequently if circumstances dictate.
The following is a summary of activity in goodwill:
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|
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|
|
|
|
|
|
|
|
|
Solar
|
|
Semiconductor
|
|
Polishing
|
|
Total
|
|
(dollars in thousands)
|
Goodwill
|
$
|
6,617
|
|
|
$
|
4,463
|
|
|
$
|
728
|
|
|
$
|
11,808
|
|
Accumulated impairment losses
|
(1,273
|
)
|
|
—
|
|
|
—
|
|
|
(1,273
|
)
|
Carrying value at September 30, 2015
|
5,344
|
|
|
4,463
|
|
|
728
|
|
|
10,535
|
|
Goodwill recognized due to acquisitions
|
—
|
|
|
600
|
|
|
—
|
|
|
600
|
|
Net foreign exchange differences
|
(67
|
)
|
|
—
|
|
|
—
|
|
|
(67
|
)
|
Carrying value at June 30, 2016
|
$
|
5,277
|
|
|
$
|
5,063
|
|
|
$
|
728
|
|
|
$
|
11,068
|
|
|
|
|
|
|
|
|
|
Goodwill
|
$
|
6,533
|
|
|
$
|
5,063
|
|
|
$
|
728
|
|
|
$
|
12,324
|
|
Accumulated impairment losses
|
(1,256
|
)
|
|
|
|
|
|
|
|
(1,256
|
)
|
Carrying value at June 30, 2016
|
$
|
5,277
|
|
|
$
|
5,063
|
|
|
$
|
728
|
|
|
$
|
11,068
|
|
Intangibles
– Intangible assets are capitalized and amortized on a straight-line basis over their useful life if the life is determinable. If the life is not determinable, amortization is not recorded.
The following is a summary of intangibles:
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|
|
|
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|
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|
|
|
|
|
|
|
|
|
|
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|
Useful Life
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
Accumulated Amortization
|
Net Carrying Amount
|
|
|
|
June 30, 2016
|
|
September 30, 2015
|
|
|
|
(dollars in thousands)
|
Customer lists
|
10 years
|
|
$
|
2,425
|
|
$
|
(962
|
)
|
$
|
1,463
|
|
|
$
|
2,434
|
|
$
|
(808
|
)
|
$
|
1,626
|
|
Technology
|
5-10 years
|
|
3,183
|
|
(1,704
|
)
|
1,479
|
|
|
3,223
|
|
(1,368
|
)
|
1,855
|
|
Trade names
|
10-15 years
|
|
1,453
|
|
(150
|
)
|
1,303
|
|
|
1,456
|
|
(72
|
)
|
1,384
|
|
Other
|
2-10 years
|
|
275
|
|
(236
|
)
|
39
|
|
|
278
|
|
(204
|
)
|
74
|
|
|
|
|
$
|
7,336
|
|
$
|
(3,052
|
)
|
$
|
4,284
|
|
|
$
|
7,391
|
|
$
|
(2,452
|
)
|
$
|
4,939
|
|
Long-lived assets
–
Long-lived assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Warranty –
A limited warranty is provided free of charge, generally for periods of
12
to
24
months, for all purchases of the Company’s new products and systems. Accruals are recorded for estimated warranty costs at the time revenue is recognized. Estimates are based on past experience and take into account the nature of the products under warranty. The following is a summary of activity in accrued warranty expense:
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
(dollars in thousands)
|
Beginning balance
|
$
|
793
|
|
|
$
|
628
|
|
Warranty – BTU merger
|
—
|
|
|
806
|
|
Additions for warranties issued during the period
|
691
|
|
|
411
|
|
Reductions in the liability for payments made under the warranty
|
(624
|
)
|
|
(822
|
)
|
Changes related to pre-existing warranties
|
(121
|
)
|
|
92
|
|
Currency translation adjustment
|
6
|
|
|
(92
|
)
|
Ending balance
|
$
|
745
|
|
|
$
|
1,023
|
|
Stock-Based Compensation -
The Company measures compensation costs relating to share-based payment transactions based upon the grant date fair value of the award. Those costs are recognized as expense over the requisite service period, which is generally the vesting period. The benefits of tax deductions in excess of recognized compensation cost are credited to additional paid-in capital and reported as cash flow from financing activities.
Stock-based compensation expense reduced the Company’s results of operations by the following amounts:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(dollars in thousands)
|
|
|
|
|
Effect on income before income taxes (1)
|
$
|
(351
|
)
|
|
$
|
(296
|
)
|
|
$
|
(1,059
|
)
|
|
$
|
(864
|
)
|
Effect on income taxes
|
47
|
|
|
40
|
|
|
145
|
|
|
134
|
|
Effect on net income
|
$
|
(304
|
)
|
|
$
|
(256
|
)
|
|
$
|
(914
|
)
|
|
$
|
(730
|
)
|
|
|
(1)
|
Stock-based compensation expense is included in selling, general and administrative expenses.
|
Stock options issued under the terms of the Company's option plans have, or will have, an exercise price equal to the fair market value of the common stock at the close of trading on the NASDAQ the trading day prior to the date of the option grant and expire no later than
10 years
from the date of grant, with the most recent option grant expiring in 2026. Options issued by the Company generally vest over
six months
to
four
years, subject to the Company's board of directors' (the “Board”) discretion pursuant to the Company's share-based compensation plans.
Stock option transactions and the options outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
|
Options
|
|
Weighted
Average
Exercise
Price
|
Outstanding at beginning of period
|
1,627,477
|
|
|
$
|
9.11
|
|
|
1,063,324
|
|
|
$
|
7.37
|
|
Granted
|
350,075
|
|
|
5.25
|
|
|
327,500
|
|
|
9.74
|
|
Assumed - merger
|
—
|
|
|
—
|
|
|
367,229
|
|
|
14.19
|
|
Exercised
|
(9,846
|
)
|
|
3.46
|
|
|
(94,454
|
)
|
|
5.51
|
|
Forfeited
|
(129,430
|
)
|
|
12.87
|
|
|
(26,571
|
)
|
|
29.48
|
|
Outstanding at end of period
|
1,838,276
|
|
|
$
|
8.16
|
|
|
1,637,028
|
|
|
$
|
9.12
|
|
|
|
|
|
|
|
|
|
Exercisable at end of period
|
1,128,320
|
|
|
$
|
8.91
|
|
|
1,005,690
|
|
|
$
|
9.75
|
|
Weighted average fair value of options
granted during the period
|
$
|
3.04
|
|
|
|
|
$
|
5.91
|
|
|
|
The fair value of options was estimated at the applicable grant date using the Black-Scholes option pricing model with the following assumptions:
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
Risk free interest rate
|
2%
|
|
2%
|
Expected life
|
6 years
|
|
6 years
|
Dividend rate
|
0%
|
|
0%
|
Volatility
|
63%
|
|
67%
|
To estimate expected lives for this valuation, it was assumed that options will be exercised at varying schedules after becoming fully vested. Forfeitures have been estimated at the time of grant and will be revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures were estimated based upon historical experience. Fair value computations are highly sensitive to the volatility factor assumed; the greater the volatility, the higher the computed fair value of the options granted. The Company uses historical stock prices to determine the volatility factor.
The Company awards restricted shares under its existing share-based compensation plans. The Company's restricted share awards vest in equal annual installments over a two to four year period. The total value of these awards is expensed on a ratable basis over the service period of the employees receiving the grants. The “service period” is the time during which the employees receiving grants must remain employees for the shares granted to fully vest.
Restricted stock transactions and awards outstanding are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
Awards
|
|
Weighted
Average
Grant Date
Fair Value
|
|
Awards
|
|
Weighted
Average
Grant Date
Fair Value
|
Beginning Outstanding
|
13,540
|
|
|
$
|
7.98
|
|
|
35,203
|
|
|
$
|
10.13
|
|
Released
|
(13,540
|
)
|
|
7.98
|
|
|
(21,663
|
)
|
|
11.47
|
|
Ending Outstanding
|
—
|
|
|
$
|
—
|
|
|
13,540
|
|
|
$
|
7.98
|
|
Fair Value of Financial Instruments
In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”), the Company groups its financial assets and liabilities measured at fair value on a recurring basis in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:
Level 1 - Valuation is based upon quoted market price for identical instruments traded in active markets.
Level 2 - Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 - Valuation is generated from model-based techniques that use significant assumptions not observable in the market. Valuation techniques include use of discounted cash flow models and similar techniques.
In accordance with the requirements of the Fair Value Measurements and Disclosures Topic of the FASB ASC, it is the Company's policy to use observable inputs whenever reasonably practicable in order to minimize the use of unobservable inputs when developing fair value measurements. When available, the Company uses quoted market prices to measure fair value. If market prices are not available, the fair value measurement is based on models that use primarily market based parameters including interest rate yield curves, option volatilities and currency rates. In certain cases, where market rate assumptions are not available, the Company is required to make judgments about assumptions market participants would use to estimate the fair value of a financial instrument. Changes in the underlying assumptions used, including discount rates and estimates of future cash flows, could significantly affect the results of current or future values.
Cash, Cash Equivalents and Restricted Cash
– Included in Cash and Cash Equivalents in the Condensed Consolidated Balance Sheets are money market funds invested in treasury bills, notes and other direct obligations of the U.S. Treasury or are in financial institutions insured by the Federal Deposit Insurance Corporation (FDIC) and foreign bank operating and time deposit accounts. The fair value of this cash equivalent is based on Level 1 inputs in the fair value hierarchy.
Receivables and Payables
– The recorded amounts of these financial instruments, including accounts receivable and accounts payable, approximate their fair value because of the short maturities of these instruments. If measured at fair value in the financial statements, these financial instruments would be classified as Level 3 in the fair value hierarchy.
Debt
–
The recorded amounts of these financial instruments, including long-term debt and current maturities of long-term debt, approximate fair value and are considered Level 2 in the fair value hierarchy.
Pensions
– The Company has retirement plans covering substantially all employees. The principal plans are the multiemployer defined benefit pension plans of the Company’s operations in The Netherlands and France and the plan for hourly union employees in Pennsylvania. The multiemployer plans in the United States and France are insignificant to the Company's results of operations and financial condition. The Company's defined contribution plans cover substantially all of the employees in the United States. The Company matches certain employee funds on a discretionary basis while certain subsidiaries require a minimum match to maintain their safe harbor status.
Shipping expense
– Shipping expenses of
$0.8 million
and
$1.2 million
for the three months ended
June 30, 2016
and
2015
, respectively, are included in selling, general and administrative expenses. Shipping expenses of
$1.6 million
and
$1.9 million
for the nine months ended
June 30, 2016
and
2015
, respectively, are included in selling, general and administrative expenses.
Research, development and engineering expense
– Research, development and engineering expenses consist of the cost of employees, consultants and contractors who design, engineer and develop new products and processes; materials and supplies used in those activities; and product prototyping. The Company receives reimbursements through governmental research and development grants which are netted against these expenses when certain conditions have been met. The table below shows gross research and development expenses and grants earned:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
June 30,
2016
|
|
June 30,
2015
|
|
June 30,
2016
|
|
June 30,
2015
|
|
(dollars in thousands)
|
|
(dollars in thousands)
|
Research, development and engineering
|
$
|
2,078
|
|
|
$
|
3,650
|
|
|
$
|
7,217
|
|
|
$
|
9,763
|
|
Grants earned
|
(510
|
)
|
|
(2,342
|
)
|
|
(1,202
|
)
|
|
(5,869
|
)
|
Net research, development and engineering
|
$
|
1,568
|
|
|
$
|
1,308
|
|
|
$
|
6,015
|
|
|
$
|
3,894
|
|
Impact of Recently Issued Accounting Pronouncements
In May 2014, FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” and issued subsequent amendments to the initial guidance in August 2015, March 2016, April 2016 and May 2016 within ASU 2015-04, ASU 2016-08, ASU 2016-10 and ASU 2016-12, respectively. This ASU supersedes the revenue recognition requirements in “Revenue Recognition (Topic 605),” and requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In July 2015, the FASB deferred the effective date of this pronouncement by one year to December 15, 2017 for interim and annual reporting periods beginning after that date. Early adoption is permitted, but not before the original effective date, which for annual periods was December 15, 2016. The Company is evaluating the impact of adopting this pronouncement.
In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation (Topic 718). ASU 2016-09 identifies areas for simplification involving several aspects of accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, an option to recognize gross stock compensation expense with actual forfeitures recognized as they occur, as well as certain classifications on the statement of cash flows. The amendments in this ASU are effective for annual periods beginning after December 15, 2016 and for the interim periods therein. The Company is currently assessing the impact that adopting this new accounting standard will have on its consolidated financial statements and footnote disclosures.
In March 2016, the FASB issued ASU 2016-07, Equity Method and Joint Ventures affect all entities that have an investment that becomes qualified for the equity method of accounting as a result of an increase in the level of ownership or degree of influence. ASU 2016-07 is effective for the Company beginning on
January 1, 2017
, early adoption is permitted. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.
In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” which requires companies to generally recognize on the balance sheet operating and financing lease liabilities and corresponding right-of-use-assets. ASU 2016-02 also requires improved disclosures to help users of financial statements better understand the amount, timing and uncertainty of cash flows arising from leases. This ASU is effective for fiscal years beginning after December 15, 2018 and early application is permitted. The Company is currently in the process of evaluating the impact of this standard on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments - Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities, which addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This ASU is effective for fiscal years beginning after December 15, 2017 and early adoption is not permitted. The Company is currently evaluating the impact that the standard will have on its consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes. This ASU requires entities to classify deferred tax liabilities and assets as noncurrent in a classified statement of financial position. This ASU is effective for fiscal years beginning after December 15, 2016, and interim periods within those annual periods. Early adoption is permitted for all entities as of the beginning of an interim or annual reporting period. The adoption of this guidance by the Company is not expected to have a material impact on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments, which simplifies the accounting for measurement-period adjustments to provisional amounts recognized in a business combination. ASU 2015-16 is effective for fiscal years (and interim reporting periods within those years) beginning after December 15, 2016. The provisions of ASU 2015-16 are not expected to have a material effect on the Company's financial condition, results of operations, or cash flows.
In July 2015, the FASB issued ASU No. 2015-11, Simplifying the Measurement of Inventory. This ASU simplifies the measurement of inventory by requiring certain inventory to be measured at the lower of cost or net realizable value. The amendments in this ASU are effective for fiscal years beginning after December 15, 2016 and for interim periods therein. The Company does not expect adoption of this ASU to have a material impact on the Company's consolidated financial position and results of operations.
The quarterly income tax provision is calculated using an estimated annual effective tax rate, based upon expected annual income, permanent items, statutory rates and planned tax strategies in the various jurisdictions in which the Company operates. However, losses in certain jurisdictions and discrete items are treated separately. The gain on the Kingstone Technology Hong Kong Limited (“Kingstone”) transaction, described in Note 10, was treated as a discrete item and accounted for $1.7 million of the tax expense in the nine months ended June 30, 2016, with the tax calculated utilizing the effective tax rate and other discrete items nearly offsetting each other.
Deferred tax assets and liabilities reflect the tax effects of temporary differences between the carrying value of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The Company records a valuation allowance if, based on the weight of available evidence, it is more likely than not that some portion or all of a deferred tax asset will not be realized. Our expectations regarding realization of our deferred tax assets is based upon the weight of all available evidence, including such factors as our recent earnings history, expected future taxable income and available tax planning strategies. The Company maintains a valuation allowance with respect to certain state, federal and foreign deferred tax assets that may not be recovered. Each quarter, the valuation allowance is re-evaluated. During the nine months ended June 30, 2016 the valuation allowance increased by a net of
$1.6
million primarily due to net operating losses in The Netherlands, France and China, partially offset by a decrease in the valuation allowance due to utilization of net operating losses in the United States.
The Company classifies all of our uncertain tax positions as non-current income taxes payable. At June 30, 2016 and September 30, 2015, the total amount of unrecognized tax benefits was approximately
$1.8
million. If recognized, these amounts would favorably impact the effective tax rate. Income taxes payable long-term primarily includes, among other items, withholding taxes that are not due until the related intercompany service fees are paid.
The Company classifies interest and penalties related to unrecognized tax benefits as income tax expense. As of June 30, 2016 and September 30, 2015, the Company had an accrual for potential interest and penalties of approximately
$2.3
million and
$2.0
million, respectively, classified with non-current income taxes payable.
The Company and one or more of its subsidiaries file income tax returns in The Netherlands, France, China, Singapore, Malaysia, Hong Kong, and Germany, as well as the U.S. and various states in the U.S. The Company and its subsidiaries have a number of open tax years dictated by statute in each of their respective taxing jurisdictions, but generally it is from
3
to
5
years in the jurisdictions in which the Company files tax returns.
Basic earnings per share ("EPS") is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly to basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding if potentially dilutive common shares had been issued. In the case of a net loss, diluted earnings per share is calculated in the same manner as basic EPS.
For the three and nine months ended
June 30, 2016
, options for
1,840,000
shares are excluded from the diluted EPS calculations because they are anti-dilutive. For the three and nine months ended
June 30, 2015
, options for
1,640,000
shares and
14,000
restricted stock awards were excluded from the diluted EPS calculations because they were anti-dilutive.
The following table outlines basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30,
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(in thousands, except per share amounts)
|
|
(in thousands, except per share amounts)
|
Basic Loss Per Share Computation
|
|
|
|
|
|
|
|
Net loss attributable to Amtech Systems, Inc.
|
$
|
(1,209
|
)
|
|
$
|
(1,604
|
)
|
|
$
|
(6,722
|
)
|
|
$
|
(9,119
|
)
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
Common stock
|
13,173
|
|
|
13,103
|
|
|
13,165
|
|
|
11,644
|
|
Basic loss per share attributable to Amtech shareholders
|
$
|
(0.09
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.78
|
)
|
Diluted Loss Per Share Computation
|
|
|
|
|
|
|
|
Net loss attributable to Amtech Systems, Inc.
|
$
|
(1,209
|
)
|
|
$
|
(1,604
|
)
|
|
$
|
(6,722
|
)
|
|
$
|
(9,119
|
)
|
Weighted Average Shares Outstanding:
|
|
|
|
|
|
|
|
Common stock
|
13,173
|
|
|
13,103
|
|
|
13,165
|
|
|
11,644
|
|
Diluted shares
|
13,173
|
|
|
13,103
|
|
|
13,165
|
|
|
11,644
|
|
Diluted loss per share attributable to Amtech shareholders
|
$
|
(0.09
|
)
|
|
$
|
(0.12
|
)
|
|
$
|
(0.51
|
)
|
|
$
|
(0.78
|
)
|
|
|
(1)
|
The number of common stock equivalents is calculated using the treasury stock method and the average market price during the period.
|
4. Stockholders' Equity
Shareholder Rights Plan
- On December 15, 2008, the Company and Computershare Trust Company, N.A., as Rights Agent (the “Rights Agent”), entered into an Amended and Restated Rights Agreement (the “Restated Rights Agreement”) which amended and restated the terms governing the previously authorized shareholder rights (each a “Right”) to purchase fractional shares of the Company’s Series A Participating Preferred Stock (“Series A Preferred”) currently attached to each of the Company’s outstanding Common Shares, par value
$0.01
per share (“Common Shares”). As amended, each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Preferred at an exercise price of
$51.60
(the “Exercise Price”), subject to adjustment. The Rights will expire
10
years after issuance and will be exercisable if (a) a person or group becomes the beneficial owner of
15%
or more of the Company’s common stock or (b) a person or group commences a tender or exchange offer that would result in the offeror beneficially owning 15% or more of the Company’s common stock. The Final Expiration Date (as defined in the Restated Rights Agreement) is December 14, 2018.
On October 1, 2015, the Company entered into a Second Amended and Restated Rights Agreement (the “Second Restated Rights Agreement”) with the Rights Agent, which expands the definition of Exempted Person as defined in the Second Restated Rights Agreement to include any person that the Board, in its sole and absolute discretion, exempts from becoming an Acquiring Person as defined in the Second Restated Rights Agreement. A Person deemed an Exempted Person under the Second Restated Rights Agreement cannot trigger any of the Rights provided therein so long as such Exempted Person complies with the terms and conditions by which the Board approved such exemption from the Restated Rights Agreement.
As previously disclosed, on October 8, 2015, the Company entered into a Letter Agreement (the “Agreement”) by and between the Company and certain shareholders of the Company who jointly file (the “Joint Filers”) under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). One of the Joint Filers has became a member of our Board after the Agreement was approved by the Board. The Agreement permits the Joint Filers, pursuant to the Restated Rights Agreement, to
individually acquire shares of common stock of the Company that would, in the aggregate, bring the Joint Filers’ collective ownership to no more than
19.9%
of the Company’s issued and outstanding common stock at any time. In the event the Joint Filers’ collective ownership at any time exceeds 19.9% of the Company’s issued and outstanding shares of common stock, the Company is entitled to specific performance and all other remedies entitled to the Company at law or equity, among others. The Company’s Board approved the Agreement and transactions contemplated thereunder, and the Board has the sole authority to terminate the Agreement at any time.
|
|
5.
|
Business Segment Information
|
The Company’s
three
reportable segments are as follows:
Solar -
The Company is a leading supplier of thermal processing systems, ALD, related automation, parts and services, to the solar/photovoltaic industry and also offers PECVD (plasma-enhanced chemical vapor deposition) equipment to the global solar market. On December 24, 2014, the Company acquired a 51% controlling interest in SoLayTec B.V. (“SoLayTec”) and beginning in the second quarter of 2015, its business has been included in the results for this segment.
Semiconductor -
In the Company’s Semiconductor segment, it designs, manufactures, sells and services thermal processing equipment and related controls for use by leading semiconductor manufacturers, and in electronics, automotive and other industries. On January 30, 2015, the Company completed its acquisition of BTU and, since the second quarter of 2015, its business has been included in the results for this segment.
Polishing -
In the Company's Polishing segment, the Company produces consumables and machinery for lapping (fine abrading) and polishing of materials, such as sapphire substrates, optical components, silicon wafers, numerous types of crystal materials, ceramics and metal components.
Information concerning our business segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months ended June 30,
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
(dollars in thousands)
|
Net Revenues:
|
|
|
|
|
|
|
|
Solar (1)
|
$
|
19,001
|
|
|
$
|
24,392
|
|
|
$
|
38,346
|
|
|
$
|
42,141
|
|
Semiconductor
|
12,200
|
|
|
12,945
|
|
|
33,406
|
|
|
25,765
|
|
Polishing
|
2,141
|
|
|
2,679
|
|
|
6,147
|
|
|
8,779
|
|
|
$
|
33,342
|
|
|
$
|
40,016
|
|
|
$
|
77,899
|
|
|
$
|
76,685
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
Solar (1)
|
$
|
(402
|
)
|
|
$
|
1,232
|
|
|
$
|
(4,532
|
)
|
|
$
|
(1,987
|
)
|
Semiconductor
|
1,056
|
|
|
(1,113
|
)
|
|
777
|
|
|
(483
|
)
|
Polishing
|
343
|
|
|
574
|
|
|
899
|
|
|
1,917
|
|
Non-segment related
|
(1,599
|
)
|
|
(1,927
|
)
|
|
(5,281
|
)
|
|
(7,409
|
)
|
|
$
|
(602
|
)
|
|
$
|
(1,234
|
)
|
|
$
|
(8,137
|
)
|
|
$
|
(7,962
|
)
|
(1) The financial statement of business units included in the Solar segment include some sales of equipment and parts to the semiconductor, silicon wafer and MEMS industries, comprising less than
25%
of the Solar segment revenue.
|
|
|
|
|
|
|
|
|
|
June 30,
2016
|
|
September 30,
2015
|
|
(dollars in thousands)
|
Identifiable Assets:
|
|
|
|
Solar
|
$
|
50,580
|
|
|
$
|
45,717
|
|
Semiconductor
|
47,874
|
|
|
46,912
|
|
Polishing
|
5,274
|
|
|
5,793
|
|
Non-segment related
|
22,431
|
|
|
27,034
|
|
|
$
|
126,159
|
|
|
$
|
125,456
|
|
6. Major Customers and Foreign Sales
During the nine months ended
June 30, 2016
,
1
customer represented
14%
of net revenues. During the nine months ended
June 30, 2015
,
two
customers individually represented
18%
and
12%
of net revenues.
The Company has operations in The Netherlands, United States, France, and China. Our net revenues were to customers in the following geographic regions:
|
|
|
|
|
|
|
|
Nine Months Ended June 30,
|
|
2016
|
|
2015
|
United States
|
20
|
%
|
|
25
|
%
|
Other
|
2
|
%
|
|
2
|
%
|
Total North America
|
22
|
%
|
|
27
|
%
|
|
|
|
|
China
|
24
|
%
|
|
26
|
%
|
Malaysia
|
22
|
%
|
|
10
|
%
|
Taiwan
|
13
|
%
|
|
15
|
%
|
Other
|
6
|
%
|
|
8
|
%
|
Total Asia
|
65
|
%
|
|
59
|
%
|
Germany
|
2
|
%
|
|
5
|
%
|
Other
|
11
|
%
|
|
9
|
%
|
Total Europe
|
13
|
%
|
|
14
|
%
|
|
100
|
%
|
|
100
|
%
|
7. Long-term Debt
In January 2015, the Company acquired
$7.2 million
of long-term debt as part of the BTU acquisition. The debt is secured by the Company's real property in Billerica, Massachusetts, and has a remaining balance of
$6.6
million as of June 30, 2016. The debt has an interest rate of
4.4%
through September 26, 2018, at which time the interest rate will be adjusted to a per annum fixed rate equal to the aggregate of the Federal Home Loan Board Five Year Classic Advance Rate plus
two hundred forty
basis points. The maturity date of the debt is September 26, 2023.
In December 2014, the Company acquired
$2.0 million
of long-term debt as part of the SoLayTec acquisition. During the nine months ended June 30, 2016, SoLayTec borrowed an additional
$1.1 million
. As of June 30, 2016 the SoLayTec long-term debt has a remaining balance of
$3.7 million
, with interest capitalized per the agreement bearing interest at rates ranging from
5.95%
to
10%
and maturity dates ranging from fiscal 2017 to fiscal 2021.
8. Commitments and Contingencies
Purchase Obligations
– As of
June 30, 2016
, the Company had purchase obligations in the amount of
$15.8 million
compared to
$9.8 million
as of September 30, 2015. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less if any agreements are renegotiated, canceled or terminated.
Development projects
– In fiscal 2014, our wholly owned subsidiary, Tempress Systems, Inc. ("Tempress"), entered into an agreement with the Energy Research Centre of the Netherlands ("ECN"), a Netherlands government sponsored research institute, for a joint research and development project. Under the terms of the agreement, Tempress sold an ion implanter ("Equipment") to ECN for
$1.4
million. Both Tempress and ECN are performing research and development projects utilizing the Equipment at the ECN facilities. Each party to the agreement will have
100%
rights to the results of the projects developed separately by the individual parties. Any results co-developed will be jointly owned. Over the
four
-year period of the agreement, Tempress is required to contribute
$1.4 million
to the project in the form of installation of the equipment, acceptance testing, project meeting attendance, training, parts, and service, including keeping the equipment in good condition and repair for the first
two
years of the agreement. As of June 30, 2016, Tempress has contributed all of the required
$1.4
million to the project.
EPA Accrual
- As a result of the BTU acquisition, the Company assumed BTU’s proportional responsibility for clean-up costs at a Superfund site. As an equipment manufacturer, BTU generated and disposed of small quantities of solid waste that were considered hazardous under Environment Protection Agency (“EPA”) regulations. Because BTU historically used a waste disposal firm that disposed of the solid waste at a site that the EPA designated as a Superfund site, BTU was named by the EPA as one of the entities responsible for a portion of the expected clean-up costs. Based on the Company's proportional responsibility, as negotiated with and agreed to by the EPA, the Company's liability related to this matter is less than
$0.1
million, which is included in Other Accrued Liabilities on the Condensed Consolidated Balance Sheet as of June 30, 2016. In accordance with the agreement, the Company established a letter of credit for
$0.2
million to the benefit of the EPA for potential cash payments as settlements for the Company’s proportional liability.
Legal Proceedings –
The Company and its subsidiaries are defendants from time to time in actions for matters arising out of their business operations. The Company does not believe that any matters or proceedings presently pending will have a material adverse effect on its consolidated financial position, results of operations or liquidity. As previously disclosed in the Company’s filings with the SEC, shortly after the Company entered into the merger agreement with BTU,
two
separate putative stockholder class action complaints (together, the "Stockholder Actions") were filed in the Court of Chancery of the State of Delaware (the "Delaware Court"). The first was filed on November 4, 2014 and the second on November 17, 2014, on behalf of BTU’s public stockholders, against BTU, members of the BTU board, Amtech and the special purpose merger subsidiary. The Stockholder Actions were consolidated on December 4, 2014. The complaints generally alleged that, in connection with entering into the merger agreement, the BTU board of directors breached certain fiduciary duties owed to BTU's stockholders. The complaints sought various forms of declaratory and injunctive relief, as well as compensatory damages.
On February 18, 2016, the Delaware Court entered the Order approving the Amended Stipulation of Settlement. As a result, the Released Claims were dismissed with prejudice and without any admission of wrongdoing by any of the parties to the Stockholder Actions. Pursuant to the Amended Stipulation of Settlement, BTU, its insurer(s), or its successor(s) in interest are responsible for payment of fees and expenses in the amount of
$325,000
which were paid in full on April 1, 2016.
As described above, the Released Claims are limited solely to claims related to any disclosures (or lack thereof) to BTU’s stockholders concerning the merger and any fiduciary claims concerning the decision to enter into the merger. While we are currently unaware of any other pending or threatened litigation related to additional claims arising from the Stockholder Actions, any future claims are uncertain, so additional harm could potentially result to the Company from this litigation, which may cause the Company to incur substantial costs and divert management’s attention from operational matters.
9. Investments
The Company’s equity method investments include a
15%
interest in Kingstone Technology Hong Kong Limited (“Kingstone”).
The Company recognizes its portion of net income or losses on a one-quarter lag. The carrying value of the equity method investment in Kingstone was
$3.0
million and
$2.7
million as of June 30, 2016 and September 30, 2015, respectively. For the three months ended June 30, 2016 we recognized investment loss of
$0.4 million
and for the nine months ended June 30, 2016 we recognized investment income of
$0.2 million
.
10. Related Party Transactions
In the fourth quarter of 2015, the Company deconsolidated Kingstone, reducing its ownership to
15%
of the Hong Kong holding company. Upon the deconsolidation, Kingstone became a related party of the Company. Based on the terms of the transaction agreements in the second quarter of 2016, the Company received a payment of
$4.9 million
from Kingstone for its exclusive sale and service rights in the solar ion implant equipment. The company recognized a gain on the sale of
$2.6 million
for the nine months ended June 30, 2016, which is included in our condensed consolidated statement of operations in Gain on sale of other assets. At June 30, 2016, the Company's related accounts receivable due from Kingstone were
$0.3 million
, which are included in Accounts Receivable on the Condensed Consolidated Balance Sheet.